British plan for paying off world debt

Revaluing IMF gold seen as way to aid poor nations

WASHINGTON (CBS.MW) -- There's a growing consensus in the world that highly indebted developing nations need all of their multilateral debt written off, said Gordon Brown, British chancellor of the Exchequer.

However, no decision was made by the International Monetary Fund at its annual meetings this weekend on a proposal to fund 100 percent debt relief by revaluing the IMF's stockpile of gold to market prices. The IMF uses $40 an ounce as the value of its bullion, while the spot market in New York closed at $421.20 Friday.

Nor did Brown get any advanced nations to accept his challenge that they take over the debt of the poorest nations. Britain has offered to pay off 10 percent of the debts on its own initiative.

Even though there was no concrete progress made on his plans, Brown was not discouraged.

"We are winning support for our proposal," Brown said Saturday. "Considerable progress was made this weekend."

Brown made the statement Saturday following morning meetings of the International Monetary Fund. Brown headed up the IMF's policy-setting body, the International Monetary and Financial Committee. See full story.

The International Monetary Fund and the World Bank have agreed to extend a current program for heavily indebted poor countries for two more years. Under that program, about 27 nations have programs that will reduce their debts by about 50 percent.

Brown said he made no formal proposal to the Group of Seven or to the IMF on revaluing the IMF's gold, saying more groundwork needs to be done first. "There are no ideological objections," he said.

The G-7 will publish a study by the end of the year on methods to reduce Third World debt.

The United States favors a slightly different plan to reduce debt to the very poor nations, in exchange for fewer loans in the future.

Total debt owed by the poorest nations tops $200 billion by some estimates. Most is owed to multilateral agencies such as the World Bank and regional development banks. Servicing that debt is a major budget item and can exceed the revenue of all exports for some nations.

Reducing debt is a common thread running through many of the discussions this weekend at the annual meetings.

The United States and Britain prefer a plan to write off about 95 percent of the $120 billion debt owed by Iraq. Most of the Iraqi debt is bilateral debt, to countries such as Japan, Russia, France and Germany.

France and Germany favor a plan to cut Iraq's debt in half.

Both Iraqi debt and poor nation debt could get resolved in a grand compromise between the United States and Britain on one side and the continental Europeans on the other.

The United States also came under criticism at the meetings for its low national savings and high fiscal debt.

The U.S. budget deficit topped the list of the three sources of major global economic imbalances cited by IMF Managing Director Rodrigo Rato. Questioned by reporters, Rato refused to condemn the recent tax cuts, saying budget savings could be accomplished in many ways.

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